Is this a realistic threat?
There is another round of foreclosures coming as option ARMs reset, which will cause millions more foreclosures.
The commercial real estate market may start to collapse soon too, bringing down small & midsize banks and the small businesses that depend on them.
We are already running up 1 trillion+ deficits.
So what is the best case, worst case and middle outcome of all of this? Is there any real risk of hyperinflation over the next 5 years?
Any risk? Sure…there is always a risk. I’d say it’s pretty marginal, however.
Best case would be that we’ll see some small inflation, but that growth will keep pace as we move out of the current recession. Middle case is that we get some more moderate to heavy inflation due to our debt, and that this will hold back our growth and make the recovery stretch out a bit longer, and not be as large as it might otherwise have been (I think this is the most likely, but my knowledge on this subject is limited and based more on discussions with friends who know marginally more than I do).
Worst case is the whole things goes tits up and we decide that this whole civilization thingy just wasn’t worth it and give hunting and gathering another try…
-XT
The deficits are a potential cause of inflation, but, correct me if I am wrong, but won’t the foreclosure crisis actually result in deflation as cash evaporates out of the market? As housing prices fall, equity disappears and cash actually becomes more valuable. People can no longer borrow against their houses, banks can no longer collect on bad loans; it all sounds like a recipe for deflation, not inflation.
I’ll bring the Jason mask and the dune buggy.
Only if the US seeks to pay off those USD denominated debts by turning the printing presses.
I knew all those paleo-conservatives you’ve got stateside would come in handy for some reason or another.
This is already happening. The fed printed a few trillion bucks and there’s still serious and realistic fear of deflation. Inflation would be the first sign of recovery.
Both of these people got it right. We could do with a bit of inflation. This is the reality :
We’re currently seeing disinflation and we’re going to see outright deflation within a year if the current trend continues, and there’s nothing to suggest it won’t.
Right now consumer spending is only the level it is because the savings rate is falling and millions of peeps (7.5 million non-current home loans in America currently, a lot of which haven’t made a payment for 12 months or more) aren’t paying their underwater mortgages, giving them more money to spend at the mall. Once their money runs out consumer spending (two-thirds of GDP) starts falling even faster. And you’ve got similar situations in Europe and China, especially China where there’s massive real estate/equity bubbles eventually going to go. Which means overwhelming levels of debt and an eventual mass debt restructuring process. Soon we’ll all be General Motors.
Or hyperinflation. Maybe we’ll try and raise wages massively to helpAmericans meet their debt repayments and stop the whole thing spiralling. Since the meltdown government policy has been to do everything they can to prop up asset markets. maybe they’ll come to the conclusion that the best way (only way left that might work) to do this is to inflate wages. That would require a massive redirection at the Fed and cause endless other problems (bond market carnage etc.) but you never know what might happen a few years down the line if everything is really going to shit and people in power start to panic.